Trump’s ‘Liberation Day’ tariffs make apparel stocks like Nike uninvestable: Wall Street reacts

Cross apparel and footwear stocks off your buy list, analysts are suggesting in the aftermath of President Trump’s sweeping “Liberation Day” tariffs.

“Until visibility improves, we expect investors show very little appetite for investment in our coverage universe,” Stifel apparel analyst Jim Duffy wrote in a note to clients early Thursday.

Duffy has coverage on top apparel and footwear names Nike (NKE) and Lululemon (LULU).

The president on Wednesday imposed a baseline tariff rate of 10% on all US trade partners, which will go into effect on April 5. Additional tariffs will be placed on countries that the Trump administration considers to be the worst offenders in balance of trade.

The list of offenders includes the key apparel and footwear sourcing markets of China, Vietnam, and Cambodia. China will see an estimated reciprocal tariff rate of 34%, while Vietnam’s rate clocks in at 46%, and Cambodia’s is at 49%.

Read more: What Trump’s tariffs mean for the economy and your wallet

Footwear and apparel goods sold in the US are nearly entirely sourced from international suppliers, mostly based in Asia. The likes of Nike have spent many decades building up Asian manufacturing hubs to capture low labor costs and government incentives to attract foreign investment.

Now that cushy arrangement could be up in smoke as a global trade war ensues. The impact to profits could be huge for the apparel and footwear industry.

Consider Nike as a proxy for the sector: 11% of its products are sourced from China, and 44% from Vietnam. They are the company’s top two sourcing countries, according to Duffy.

Duffy calculates that the tariffs as they stand, not assuming Nike raises prices and switches up sourcing countries, could hit earnings per share this year by a whopping $1.69.

Nike stock is getting pounded over 9% in premarket trading on Thursday. Others in the space are seeing big-time sell-offs too.

“The apparel and footwear brands have been good at moving to low cost sourcing hubs over time, but the current tariff plan leaves nowhere to hide,” Evercore ISI analyst Michael Binetti wrote in a note of his own today. “On average, brands in our coverage source about 45% of goods from Vietnam (with names like On Holding (ONON) as high as 90%).

Here is the Wall Street reaction.

“Announced reciprocal tariffs are broader and higher than expected. The supply chain for lifestyle brands is entrenched in Asia and not easily relocated. If seen through, incremental expense from these tariffs is a significant challenge to profitability for our coverage universe.

“Until visibility improves, we expect investors show very little appetite for investment in our coverage universe. Most challenged are those with Southeast Asia manufacturing concentration, high U.S. revenue exposure, and thin margins including Columbia (COLM), Nike, and Under Armour (UAA). Both Wolverine Worldwide (WWW) and VF Corp. (VFP.HA) face added challenge from levered balance sheets.

Directionally better insulated are those with diversified geographic revenue bases and higher operating margin including Birkenstock (BIRK), Levi’s (LEVI), and Lululemon though we note, profitability could be impacted significantly for these businesses as well. Conceptually, multi-branded retailers and ecommerce platforms like Dick’s Sporting Goods (DKS) and Revolve (RVLV) have less direct exposure though they will have to pass along brand price increases to inflation fatigued consumers.”

Listen: How the fashion industry may respond to Trump tariffs

“Through Q4 earnings, many companies incorporated the risk of previously announced tariffs in their fiscal 2025 guidance and discussed mitigation strategies to move supply chains to reduce their impact. The reciprocal tariff announcement on April 2 has rendered these initiatives essentially fruitless as major tariffs have been applied to dozens of countries globally. With Asia production hubs particularly hit (China 34%; Vietnam 46%; Cambodia 49%), all footwear and apparel company margins will be affected as costs rise.”

“As a sub-sector, off-price appears moderately exposed to tariffs. The resounding sentiment from the off-price C-suites is that the sector is well-positioned to take advantage of any dislocation in the market due to the nature of the business model.

“However, even off-price can be subjected to pressures from higher prices. On its latest earnings call, TJX Companies (TJX) specifically called out its sourcing efforts from Europe as a key differentiator, but now the EU will be subjected to 20% tariffs. We expect off-price’s value proposition could resonate well with customers ahead, given the uncertainty.”

“Tariff plan will drive unprecedented uncertainty for apparel and footwear makers. The Trump plan puts a much higher tariff burden on softlines brands than we expected. Further, the impact to demand as the consumer’s entire basket of goods starts to inflate makes it nearly impossible to model out revenues with conviction.

“As we’ve seen with this administration before, the plan could change fast, but in combination, the above inputs create a scenario with uncertainty that mirrors the early days of COVID for softlines, in our view. We expect softlines to be one of the more pressured stock sectors in the near-term. In this note, we start to stratify which brands have the most earnings risk, as well as what we think are the important themes the market will prosecute first.”

“With nearly 100% of goods produced overseas for many in our coverage, this group faces the greatest headwind from higher tariffs out of all retail groups. Those best positioned to mitigate the higher tariffs are the few with low int’l sourcing (BBWI (BBWI), BURL (BURL), ROST (ROST), TJX, ACI (ACI), KR (KR), ULTA (ULTA), DG (DG), WMT (WMT)), those with higher merchandise margins (LULU, TPR (TPR), RL (RL), ONON (ONON), DECK (DECK)), strong business momentum with a history of proven pricing power (AS (AS), BIRK, ONON, DECK, RL, TPR), those serving a higher income consumer (AS, BIRK, LULU, ONON, RL, URBN (URBN)), and those that are low cost providers within their industry (WMT, GIL (GIL), BURL, ROST, TJX), as consumers are likely to gravitate toward value during a period of higher prices.

“Balance sheet health will become increasingly important during this period of uncertainty. We believe off-pricers are likely to thrive during this period of extreme disruption. Those we believe are in a less favorable position are those that have struggled to pass thru price (CRI (CRI), PVH, SHOO (SHOO), NKE, KSS (KSS)), turnaround stories (NKE, CPRI, VFC, UAA), those with weaker balance sheets (KSS, HBI (HBI), VFC, DG) and those brands that might see backlash from anti-American sentiment (NKE, PVH, AEO (AEO)).”

Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.

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